Wednesday, April 8, 2009

During a speech this past Monday at Harvard University, Rep. Barney Frank was asked about his role in bringing about the present economic extremity. (H/T to: myfoxboston.)

It all started with a question: "How much responsibility, if any, do you have for the financial crisis?" Rep. Barney Frank (D-Mass) and a conservative Harvard law student debated over how Frank should have handled his role as the House Chairman of the Financial Services Committee.

Frank was at Harvard University for a speech at the Kennedy School of Government. Frank said the student wasn't backing up his claims, invoking some laughter from the crowd, and the student told Frank he wasn't answering his question.

Rep. Frank's attempts at obfuscation notwithstanding, the historical record on his involvement in the economic crisis is fairly clear (as discussed here and here.) Here are the facts...

As noted by the Boston Globe, Frank's own hometown newspaper, "the roots of this crisis go back to the Carter administration."

That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.

As a result of the financial instability engendered by Fannie and Freddie backing subprime loans, as well as revelations uncovered during an outside investigation of both entities, the Bush administration sought the creation of a new agency that would provide increased supervision of Fannie Mae and Freddie Mac. As reported by the New York Times, Mr. Frank was strident in his condemnation of such a proposal during congressional hearings in September 2003.

''These two entities - Fannie Mae and Freddie Mac - are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' (Emphasis added.)

Franks vociferous support of maintaining the status quo does not surprise. According to the Wall Street Journal, Barney Frank saw both as tools by which he could advance his affordable housing agenda.

In January of [2008], Mr. Frank also noted one reason he liked Fannie and Freddie so much: They were subject to his political direction. Contrasting Fan and Fred with private-sector mortgage financers, he noted, "I can ask Fannie Mae and Freddie Mac to show forbearance" in a housing crisis. That is to say, because Fannie and Freddie are political creatures, Mr. Frank believed they would do his bidding.

And this is exactly what Mr. Frank attempted to prove when the housing market started to go south. He encouraged the companies to guarantee more "affordable" mortgages, thus abetting their disastrous plunge into subprime and Alt-A loans. He also pushed for, and got, an increase in the conforming-loan limits to allow Fan and Fred to securitize and guarantee larger mortgages. And he pressured regulators to ease up on their capital requirements - which now means taxpayers will have to make up that capital shortfall.

But the biggest payoff for Mr. Frank is the "affordable housing" trust fund he managed to push through as one political price for the recent Fannie reform bill. This fund siphons off a portion of Fannie and Freddie profits - as much as $500 million a year each -- to a fund that politicians can then disburse to their favorite special interests.

And while the Journal acknowledges that Frank had "many accomplices from both parties in his protection of Fan and Fred" (see videos below), the record will note that his voice was the loudest and most consistent in support of maintaining things as they were.

P.S.: As a aside, I am struck by the fact it was a Jewish law student who had the temerity to question Mr. Frank, himself a Jew. As an African American, it is my experience that blacks rarely hold black elected officials accountable for anything - even when said politicians are incompetent, underperforming or are guilty of political malfeasance. Blacks seem to conclude that the outward appearance of racial solidarity will lead to greater socio-economic security. Sadly, such assumptions have not borne themselves out to be true; if anything, the single-minded quest for solidarity has lead to sclerotic thought and behavior patterns on the part of the black political class, and an economic atrophy manifested throughout the black underclass.

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Modern liberalism, for most liberals, is not a consciously understood set of rational beliefs, but a bundle of unexamined prejudices and conjoined sentiments. The basic ideas and beliefs seem more satisfactory when they are not made explicit, when they merely lurk rather obscurely in the background, coloring the rhetoric and adding a certain emotive glow. James Burnham, Suicide of the West